Page 390 - Arabia the Gulf and the West

The (Sting' 387

on 27 July warning the oil-consuming countries against contemplating any
concerted action to keep oil prices static. ‘To seek a direct confrontation with

OPEC’, the statement said, ‘may have a damaging effect upon the world
economy.’ In the course of his talks with ARAMCO the following month
Yamani went out of his way to emphasize that the Tehran agreement, which
still had nearly two and a half years to run, would soon have to be renegotiated.
(The fact that the latest revision of that tattered document had taken place at
Geneva only two months previously was brushed aside as of no consequence.)

The next price increases, Yamani told the ARAMCO representatives, would
be very large, and they would be imposed by OPEC, not negotiated with the oil
companies. It would be the same with the determination of the prices at which
ARAMCO would be permitted to buy back the Saudi government’s share of
oil production: the prices would be set by Petromin (the Saudi government
corporation under the direction of the department of petroleum and mineral
resources), and if ARAMCO did not accept them it would be ordered to cut
back production.

How real Yamani’s threat was, and how seriously it was viewed by
ARAMCO, are questions to which it is not easy to supply the answers from the
scanty evidence it is possible to gather about Saudi-ARAMCO relations in
1973. It could have been that the two sides were merely dancing an elaborate
minuet - to music played in Washington - for the diversion of those who cared

to watch. On the other hand, there was in 1973 a growing demand for oil on the
world market, deriving in part from fears of a possible shortage. ARAMCO
was doing its best to raise production, although it was encountering difficulties
in the process, not only with the Saudi government but also for technical
reasons. At one stage there were rumours that the future life of the Saudi
Arabian fields, in particular the Abqaiq and Ghawar fields, was being
endangered by the rate and manner of their depletion. ARAMCO publicly

dismissed the rumours as unfounded, pointing to the problems it was
experiencing with water injection, pressure reductions and unsatisfactory
pumping equipment. It was fairly obvious, however, that ARAMCO could
not have sustained for very much longer the production levels it was achieving
by September 1973 (8.3 million b/d as compared with 6.5 million b/d in
February 1973) without the risk of doing permanent damage to the fields. This
knowledge must have removed much of the sting from Yamani’s threat of a
production cut-back.

There was rather more substance to his warnings about price increases,
although here again, as observed earlier in connexion with the Geneva agree­
ment of 1 June, ARAMCO was more concerned with access than with prices.
he world-wide demand for oil had driven the market price of oil during the
summer steadily upwards towards its posted price, and in September market
prices actually overtook posted prices. There was, therefore, an apparently
strong case in purely commercial terms for an increase in posted prices in the